PlasmaFinance - Banking on DeFi
A breakdown of PlasmaPay's DeFi aggregator
This is arguably one of the most ambitious new projects we’ve seen. There is so much to cover, and a few subtle things that most research teams have missed, but we haven't! So with that out of the way, we are going to shed some light on PlasmaFinance. We’ll discuss the tech stack, token evaluation and how we see parent company PlasmaPay becoming a dominant player in the world's second most crypto-hungry country.
PlasmaFinance DeFi Aggregator
We are going to start off by giving a brief overview of what PlasmaFinance offers, so then we can weave in how we see things progressing based upon the roadmap and press releases. This project is built around 10 pillars of decentralized finance (DeFi) and they are:
PlasmaFinance Liquidity Pools
PlasmaFinance Yield Farming
PlasmaFinance Debit card
PlasmaFinance On and Off Ramps for Fiat
Labelled “your home for decentralized finance”, the PlasmaFinance Dashboard, is the front-end of the ecosystem. Presented as an attractive user interface, the dashboard, like all of PlasmaPay products is built around simplicity.
Then there’s the cross-chain DEX. Currently the swap feature is being implemented, using Uniswap, Balancer and Mooniswap, for the native Ethereum swaps. Whenever a swap is requested, the protocol searches those exchanges in real time to find you the best price, along with the lowest exchange fees. However, PlasmaFinance goes further and they are working on cross-chain swaps as well. The first two chains will be Binance’s Smart Chain (BSC) and Plasma’s own solution called Plasma. We will talk a bit more about Plasma soon.
The PlasmaFinance liquidity pools consist of pooled capital from PlasmaFinance users, forming an Automated Market Maker (AMM). When users submit two or more pairs of tokens like $PPAY and $USDT they begin earning trading fees whenever other users buy $PPAY or $USDT. Today, these pools are using Uniswap as a temporary solution, in anticipation of the release of Plasma.
Staking and Governance in our opinion go hand-in-hand, so we will discuss them in tandem in this section. In the near future, we can imagine that the PlasmaFinance DEX will be processing millions of dollars a day in transaction volume. Since $PPAY is a utility token of the protocol, PlasmaPay plans to eventually add in a small fee on the DEX and Fiat on/off ramps, which we presume will go to the $PPAY Treasury. Once the process to collect fees has started, the $PPAY token holders can vote via the Governance system to return some of the Treasury back to staked $PPAY token holders.
Like staking and governance, borrowing and lending are best discussed in tandem. In order to borrow tokens, you must first put up tokens as collateral. The protocol will allow you to borrow up around 75% of your deposited collateral. If your funds drop to near the value of the collateral you deposited, there is a good chance you’ll be liquidated. When this happens you are free to keep the borrowed funds as the protocol will have already sold your collateralized tokens. This is your incentive to repay the loan, on time with the agreed upon interest.
Yield farming is a new phenomenon in crypto, which has ushered a new generation of projects populating the DeFi space. It's based on the theory of Proof of Capital, of which there are many variants. The two most popular are Proof of Capital and Proof of Capital as Liquidity. With PoC you are agreeing to lock up tokens you already own and in return you earn the native token of the protocol. With PoC as Liquidity, you are depositing your token along with the native token into an AMM like Uniswap to earn APY’s over 100%. You may be asking, how can teams give away tokens with such a high APY and still acquire users? The answer: It’s marketing. Teams spend their marketing budget on users by giving away tokens for free. We are not sure what the conversion rate from farmer to user is, but it must be high enough to make it worthwhile.
Synthetics are currently the newest topic buzzing around crypto, so what are they? Synthetics introduce the ability to create an asset that is pegged in price to a real world asset. This brings endless possibilities, because you can create synthetic gold, silver, even synthetic crypto assets like $BTC, $ETH or even synthetic $PPAY! One of the advantages for synthetics, is the ability to convert directly into that synthetic asset from any crypto. This saves you the hassle of selling your favorite token, withdrawing the funds to your bank account, waiting days for it to show up in your account, then more days to deposit into your brokerage. With synthetics, you can eliminate these unnecessary delays.
Crypto debit cards are slowly increasing in popularity. The value they bring to consumers is immeasurable, due to the same benefit synthetics bring in skipping all that time waiting for deposits into and out of your bank account. With these cards, any purchase made with your card is automatically deducted from the crypto within that designated wallet.
Last but not least, we have reached fiat on and offramps for crypto. This makes it significantly more convenient for new users to spend money by bank or credit card to quickly buy crypto. This effectively bridges a user’s bank account directly into DeFi.
We claimed that all of these features are the pillars of the $PPAY ecosystem but since $PPAY is run on Ethereum, all of those transactions have costs. With the current gas prices of 100+ GWEI, we are looking at on average a transaction cost of $20-$50 to use any of the above features. This document explains how PlasmaPay aims to piece together these features using the layer 2 Plasma blockchain, in which all of the transaction costs will likely reduce to less than $0.10 each.
Providing Pathways to DeFi in Africa
The inspiration for this section came to us, after seeing this tweet from Jack Dorsey, the founder of Twitter. He shares research that shows that Nigeria is currently ranked the second country in the world for buying Bitcoin on the Paxful exchange, surpassing China.
If we dig a little deeper into Nigeria, we will see that this country is currently plagued with:
Local currency devaluation (~1/3rd the value it had 10 years ago)
Government corruption (rampant spending, no audits and no accountability)
Banks giving little to no interest for cash deposits. ~4% interest in a currency that devalues through inflation at ~13% per year.
This is where Bitcoin and stable coins combined with DeFi will play a vital role to this and many other countries in the coming years. From their enthusiasm and technological literacy in buying Bitcoin, we believe it'll be a natural progression for Nigerians to start diversifying into USD-based stable coins where they can earn 7-10% APY on Ethereum. However, when you factor in the fees for such a process, it gets quite expensive to pay $10 to deposit and $10 to withdraw, making them less likely to use it. Contrastingly, with the far more affordable estimated fees of Plasma, the likelihood of users taking to DeFi will increase, allowing them to watch their savings grow over time.
The next question is, in such a competitive space, how exactly is PlasmaFinance going to capture this market? Well, with its fiat on/off ramps of course! PlasmaPay and Ferrum Network recently announced that they were teaming up so PlasmaFinance could leverage their extensive African fiat onramp / offramp into DeFi. The following is a quote from Ilia Maksimenka, the CEO of PlasmaPay:
“Ferrum Network has impressed us with their commitment to interoperability and lowering the barriers to entry, and we are delighted to be able to integrate the Nigerian Naira into our African fiat onramp. This partnership will assist us greatly as we seek to bring DeFi to the masses.”
We can see that having a fiat onramp to something as ambitious as PlasmaFinance is highly desirable as a way to quickly and cheaply onboard new users. Most fiat onramps we have seen force you to buy only from a limited selection of coins. But this partnership allows users to choose from a wide range of coins and tokens, including the majors like Bitcoin and Ethereum, to the blue chips of AAVE and Synthetix, to fan favorites of Doge and Polkadot!
$PPAY Potential Upside
At the time of the writing, $PPAY has the following statistics:
Market cap: $2.8m
Coingecko ranking: 750
One big advantage of this ambitious project, is that it only takes a successful implementation of one aforementioned pillar, to make it a breakout success in its category. We believe their biggest strength lies in the fiat onboarding, with synthetics as our second pick and debit cards as our third. With that in mind, we have a few competitors that we can use as a gauge to see where $PPAY stacks up by market cap.
Ferrum Network - $16m
Technically Ferrum is a partner, not competitor, but we aren’t aware of any competitors in this segment. So if you are, leave us a comment in our Telegram.
Synthetix - $1.3b
Mirror Protocol - $23m
SynLev - $10m
Crypto.com - $1.4b
Swipe - $55m
Monolith - $13m
Getting any one of these three pillars of DeFi correct, would put the $PPAY token up to a minimum of 4x its current value. From our point of view, this seems more likely to happen than not.
Decentralized Finance continues to play a very large role in first world countries where paying high fees have become normalized. To capture the up and coming markets, blockchain will need to drastically reduce the fees to a reasonable level to remove the barrier of entry combined with ease of accessibility in places like Nigeria. We believe that PlasmaFinance has one of the strongest chances we have seen to tap these untapped markets, allowing them to earn, save and spend within DeFi. Taking a step back and looking at the whole project, you might see it as a bank. A crypto bank. There’s borrowing, lending, debit cards, as well as potential access to stocks and bonds through their synthetic platform. Everything you would want from a bank, without having to stand in line to talk to a banker.
Reminder of risks
As always, we are on the cutting edge where technology and finance meet. When you use crypto currency, you are doing so at your own risk knowing that there is a chance the crypto goes to zero or your deposit into a smart contract gets drained by a hacker or lost forever. There is no ‘reversal’ button that shows up to correct these things. That said, PlasmaFinance is written purely on smart contracts and the team has partnered with Certik to perform ongoing audits and security tests, so this should add an extra level of assurance that everything is as safe as it can be.